Daily Markets: Markets Grapple With GDP Impact Of Coronavirus

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Today’s Big Picture

As we get ready to close the books on January, gains in equities earlier in the month have come under pressure as the coronavirus continues to expand. Earlier today China's National Health Commission confirmed there have been 9,692 confirmed cases of the coronavirus, with 213 deaths, but reports suggest the virus has reached at least 18 counties. The U.K. confirmed its first two cases of coronavirus on Friday, while the U.S. and Japan advised citizens avoid traveling to China. We'd remind readers that yesterday the World Health Organization (WHO) labeled the virus a "global health emergency" and the US State Department elevated its China travel advisory to Level 4 -  "Do Not Travel."

Investors and economists are now attempting to assess the impact of this moving target on the global economy and corporate earnings. The virus already placed nearly 60 million people under partial or full lockdown in Chinese cities for a week. Making those calculations even more challenging is the news that more than a dozen Chinese provinces announced an extension of the current Lunar New Year holiday by more than a week, which means businesses need not re-open until at least the second week of February. Calculations from Bloomberg suggest those provinces accounted for almost 69% of China’s gross domestic product in 2019. Hong Kong announced it will extend school holidays until March 2. 

We suspect that while many are watching Sunday’s NFL Super Bowl, many investors and economists will be putting fingers to keyboards to refine as best they can the global GDP impact of the virus. We’ve already started to get downward revisions for China’s March 2020 quarter GDP, but this morning Goldman Sachs (GS) is sharing its view the coronavirus will hit US GDP in the current quarter by 0.4% as “as the number of tourists from China declines and exports to the Asian nation slow.” Following yesterday's initial print of 2.1% for the December quarter and ahead of the barrage of economic data to be had next week, we'd note The Wall Street Journal's Economic Forecasting Survey already forecasts GDP for the March 2020 quarter to slow to 1.6%. In our view, as the economic impact of the virus is accounted for in economic models, the risk to current GDP forecasts is to the downside with the ultimate revisions hinging on the duration of the virus.

Data Download

The Official NBS Manufacturing PMI in China fell to 50.0 in January 2020 from 50.2 December, and we’d note the survey was conducted before the coronavirus outbreak. The same goes for the Official NBS Non-Manufacturing PMI for China that rose month over month to 54.1 in January 2020 from 53.5 and the expected 53.5. 

The preliminary estimate of December 2019 quarter GDP for the Eurozone slipped to 1.0% from 1.2% in the September quarter, missing the expected 1.1%. This marked the weakest reading since the December 2013 quarter and reflected slowing in Spain to 1.8% from 1.9% in the September quarter, while the Italian economy stalled in the December quarter and the French economy shrank by 0.1%.

December 2019 Retail Sales in Germany rose 0.8% YoY and fell 3.3% vs. November 2019, missing the expected 0.5% MoM decline for the month.

Turning to the US, economic data to be had today includes December Personal Income & Spending, the January Chicago Purchasing Managers Index and the final reading for January Consumer Sentiment. And as we collect today’s data, we’d note the upward revision to last week’s jobless claims - one of the largest revisions for any week in the past 10 years.

Stocks to Watch

Colgate Palmolive (CL) reported December quarter EPS of $0.73 per share, matching the consensus forecast, as quarterly revenue rose 5.4% YoY $4.01 billion, beating the expected $3.93 billion. For 2020, Colgate is guiding revenue to be up +4-6% YoY to $16.3-16.6 billion vs. $16.16 billion consensus.

Honeywell (HONreported December quarter EPS of $2.06, $0.02 ahead of expectations as revenue for the quarter matched consensus forecasts. The company sees its 2020 EPS in the range of $8.60-9.00 vs. the $8.79 consensus. 

Caterpillar (CAT) reported better than expected December quarter EPS despite missing quarterly revenue expectation but guided its 2020 EPS below expectations. For the December quarter, the company reported EPS of $2.63 vs the expected even tough revenue for the quarter fell 8.4% YoY to $13.14 billion vs $13.42 billion consensus. For 2020, Caterpillar sees EPS of $8.50-10.00 vs. the $10.67 consensus forecast. The standout line in the guidance discussion by this barometer of the global economy was the following: "We expect continued global economic uncertainty to pressure sales."

1Life Healthcare (ONEM), a San Francisco-based primary care provider that operates a membership-based medical office in 9 major markets, priced its IPO late yesterday at $14 per share, the bottom of the expected $14 to $16 range. The company had been valued over $1.5 billion in its last funding round.

Oncology medicine company Black Diamond Therapeutics (BDTX) priced its IPO of 10.6 million shares at $19 compared to the initial targets of 8.9 million shares in the $16-$18 price range. 

Consumer products company Reynolds Consumer (REYN) priced its IPO of 47.2 million shares at $26, at the lower end of the $25-28 target range. 

Amgen (AMGNshares fell over 3%in extended trading last night on an earnings beat but revenue miss.

Amazon (AMZNrose over 12% yesterday in extended trading versus the Wednesday's close after blowing away expectations for the December quarter with an earnings beat of 57%, revenue growth of 21% and AWS revenue that rose 34% YoY. The guidance was essentially in line with net sales for the quarter expected in the range of $69-$73 billion. One stat that jumped out at us was the admission it now has “over 150 million paid Prime members around the world,” which compares with 100 million two years ago.

Shares of IBM (IBM) just over 4% at one point yesterday in extended trading on the news that CEO Virginia Rometty will be replaced by Arvind Krishna April 6.

Flex Inc (FLEX) rose more than 10% after the close after reporting beats on both the top and bottom line and guided towards the higher end of expectations.

Navistar International Corp (NAVrose more than 41% in extended trading on reports from Bloomberg that Volkswagen (VLKAF) is looking to acquire the company.

The Directors of Tesla (TSLA) settled a shareholder lawsuit for $60 million concerning the company’s acquisition of SolarCity Corp in 2016, leaving CEO Elon Musk the lone defendant facing claims that the acquisition was worthless. The trial is scheduled to being March 16 in Delaware with shareholders asking for $2.6 billion in damages.

US Steel (X) gained nearly 10% in extended trading after reported a smaller than expected loss in Q4 and providing positive guidance. Revenue in the December quarter fell 23% YoY, but the company expects that Q1 will be the trough for the year. The company also reported that it is cutting its quarterly dividend to $0.01/share from $0.05/share.

Visa (V) dropped nearly 1% from Wednesday’s close in extended trading after reporting an earnings match but a revenue miss.

Western Digital (WDCrose 6% in extended trading after reported a beat on both top and bottom line and providing strong guidance for the next quarter.

World Wrestling Entertainment (WWE) lost more than 20% post-market after it was announced that co-presidents George Barrios and Michelle Wilson are leaving their positions and giving up their seats on the Board of Directors. Board member Frank Riddick III will be the interim CFO and will report to Chairman/CEO Vince McMahon.

After today's US equity markets close, since it is a Friday there are no expected corporate earnings reports. There are, however, more than 500 companies expected to report next week, and those investors looking to get a jump on things we suggest visiting Nasdaq’s earnings calendar page

On the Horizon

    • Upcoming IPOs:
        • Health and wellness company Avadim Health (AHI) is looking to price 5 million shares within a price range of $14-$16;
        • Arcutis Biotherapeutics (ARQT) aims to price $7.8 million shares between $15-$17;
        • Casper Sleep (CSPR), the company that popularized the bed-in-a-box trend, plans to offer 8.4 million shares in a price range of $17-$19.
        • Drug discovery software company Schrödinger (SDGR) will offer 10 million shares priced between $14 to $16;
        • For a complete list of upcoming IPOs by month, please visit the Nasdaq IPO Calendar.
    • Dates to mark:
        • Jan 31: Brexit deadline
        • Feb. 24-27: Mobile World Congress
        • May 12-14: Google I/O Developer Conference

Thoughts for the Day

“It is amazing how complete the delusion that beauty is goodness.” ~Leo Tolstoy


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Lenore Elle Hawkins

Lenore Elle Hawkins has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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